Saturday, June 30, 2012

Why are liberals so romantic about small business?

There is a protest today in Los Angeles against the construction of a new Wal-mart in Chinatown. The store would be part of a mixed use development near a transit station on a lot that has sat vacant for some time.

I am no fan of Wal-mart. Among other things, I wish that those who attempt to bring a class action suit against Wal-mart pay discrimination had prevailed in the Supreme Court case of Wal-mart vs Dukes. Nevertheless, it also concerns me that Los Angeles has had essentially no job growth in two decades, and that urban redevelopment is very difficult to do here. According to the leading scholar on the economics of Wal-mart, Emek Besker,Wal-mart creates more jobs than it destroys(BTW, I don't think Emek is a particular fan of Wal-mart either). It also allows households to buy goods at low prices. On balance, I think the construction of the Wal-mart in Chinatown will be good for that particular neighborhood and the city.

One of the arguments advanced against Wal-mart is that it hurts small business. I particularly hear this from fellow liberals, who love to extol the virtue of small business. Yet, according to Kelly Edminston at the KC Fed, job quality is much worse at small business than large firms. The average wage at a small firm (< 100 workers)was $15.69 an hour in 2004; for large firms (>500 workers) it was $27.05. Moreover, small businesses paid 1/4 of their labor force less than $8 per hour; for large businesses it was 3 percent of their labor force.